Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Compliant Marketing: How to Avoid SEC Fines
Compliance | Sep 11, 2024
Image: Freepik/rawpixel.com
Fintech Insights for Navigating the SEC Marketing Rule
The Marketing Rule was created in December 2020 and now the Securities and Exchange Commission (SEC) is ramping up enforcement. The SEC just fined nine investment advisors a total of $1.24 million for using deceptive advertising and omitting key disclosures when relying on third-party ratings and client endorsements. The marketing rule is the biggest modification in decades and is intended to improve investment advisor advertising standards and ensure that investors get fair, accurate, and transparent information. Fintech companies, especially those offering financial services, need to understand and follow these new regulations to avoid regulatory fines.
Why the SEC Marketing Rule Matters
The SEC 2020 Marketing Rule (430 page PDF) is regarded as one of the biggest modifications in many years. The previous solicitation and advertisement laws had not been touched since the 1960s/70s, so updates were long overdue given the introduction (and importance) of social media, digital marketing, and other forms of online communication including texting. The rule incorporates principles-based standards, which are more adaptable and suitable to the quickly changing marketing environment of today where firms use performance advertising, third-party ratings, and testimonials (to name a few techniques).
Important Provisions
- The Marketing Rule broadens the definition of advertising to include both direct and indirect communications that promote investment services. This covers both conventional and digital communication techniques, such as social media postings and brochures and newsletters.
- Advisors must provide performance data in a fair and balanced way. Using false information about timelines, selecting just the best outcomes, and omitting to mention risks are in violation of the rule. To comply with requirements, businesses must report performance over regular time periods in a way that allows investors to make informed decisions.
See: Can AI Truly Replace Human Financial Advisors?
- Testimonials and endorsements can be used but with restrictions. Disclosures must make it clear if there are any conflicts of interest and whether the testimonial provider was paid for their services. To avoid misleading potential investors, transparency is crucial.
- If an adviser uses a third-party rating in its marketing materials, clear disclosures about the rating process, the rating provider's name, and financial arrangements must be provided. This is to ensure that third-party ratings are trustworthy and not influenced by incentives.
- Firms must keep all records of advertising and communications with clients including conversations online (i.e., email, text etc), so the SEC can audit firms' effectively.
Examples of Good Marketing Practices
1 - Truthful and evidence-based claim: An adviser clearly shows performance outcomes across standardized periods (e.g., 1, 5, and 10 years) and discloses any associated risks, such as market volatility or potential losses. The performance data is supported by records that can be verified by the SEC, if required.
- The adviser avoids cherry-picking performance outcomes, allowing investors to make educated decisions based on fair, transparent, and balanced facts.
2 - Clear use of testimonials: A client testimonial is used with full disclosure that the individual is a current client who was rewarded for their recommendation. The commercial also emphasizes possible conflicts of interest and the fact that previous performance does not guarantee future results.
See: How to Use Influencer Partnerships to Boost Your Business’s Social Media Marketing
- The adviser is transparent about being paid for the work and and conflicts, which complies with the need to properly disclose important facts.
3 - Accurate 3rd party ratings: An adviser provides a third-party rating from a reputable agency and provides a detailed note that includes the assessment methodology, duration of the review and whether or not the advisor was paid for it.
- The advisor ensures that investors can fully understand the contest and trustworthiness of the rating, which is in line with the SEC's need for openness and transparency.
Examples of Bad Marketing Practices
1 - Misleading or false performance claim: An adviser promotes "top-performing" funds for a three-month period without disclosing that the success was due to an temporary anomaly in the market and that the long term performance were much lower.
- The adviser deceived prospective investors by cherry-picking performance and failing to present a fair and balanced image, so failing on transparency too.
2 - Improper use of testimonials: An advisor gives an amazing client endorsement that implies the advisor's services guarantee profits. They also don't disclose that they were paid for the endorsement.
- Failure to disclose compensation, risks, and potential conflicts of interest is misleading and in violation of the SEC's marketing rule.
See: SEC Adopts New Climate Disclosure Rules, Excluding Scope 3
3 - Inaccurate third-party ratings: An advisor advertises a third-party rating but does not disclose the rating criteria or mention that the business was compensated for services.
- Misleading and lack of transparency. Did not disclose the rating process and may mislead them about this advisor's credibility.
Best Practices for SEC Compliant Marketing
- Be Transparent. Always state any payments, and make sure your advertisements do not mislead or omit important information.
- Be Fair and Balanced. Present both the risks and possible rewards of your services.
- Continuous Monitoring. Update your compliance processes on a regular basis, and include any new SEC guidelines or clarifications.
Closing Thought
With the SEC concentrating on marketing compliance, fintech businesses should assess their marketing strategy to ensure transparency, accuracy, and fairness.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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